Thursday, June 30, 2011

It is the last day of June, which means it is time for another round of government layoffs. Some state governments will be shutting down tonight, sending most workers home, because they haven’t put together a budget. Others will be preparing for layoffs because they do have a new budget, but one that is smaller than last year’s. Layoffs and reduced hours also affect businesses that depend on state funding or that provide supplies and services to state operations. Schools and local governments may follow with layoffs if the details of the state budget are disappointing.

California, at least, will not be one of the states without a budget this year. The budget agreement announced yesterday may be ugly and socially unacceptable, but it is better than having a more rationally constructed budget that arrives in September. California’s new budget makes lofty economic assumptions that may have to be revisited as soon as then, probably resulting in layoffs at schools. In the meantime, the big bite in the California budget compromise is $2 billion taken away from redevelopment efforts. At least 25,000 job cuts will have to follow across the state starting next week after that particular budget cut.

It may be a similar story in Pennsylvania, which looks to have a new budget nearly on time, but with more than $2 billion in education cuts. Schools across the state will be shedding 20,000 jobs — and 100,000 students.

These kind of budget cuts may appear short-sighted, and the job cuts that result from state budget cuts will likely be enough to bump up the unemployment rate and stall the national economy, but it is easy to underestimate the value of having a budget in place. When people are waiting for the budget, they’re not working productively, and the ultimate economic costs of the worry, uncertainty, and distraction are just as real as those of unemployment.

Wednesday, June 29, 2011

Australia is planning a step forward in cigarette packaging next year, replacing the current commercial packages with grisly packaging that’s designed to be as ugly as possible while still showing accurately the medical consequences of cigarette smoking. The new cigarette packs will still show the brand of cigarette, but only in two lines of plain text. The legislation has barely been introduced, and Phillip Morris is already suing, claiming it has a legal right to use its logos on cigarette packs.

It’s a high-risk move for Big Tobacco, which has never been able to win similar suits in the more commerce-friendly legal systems of Canada and the United States, but observers say it’s part of a new global campaign of predatory litigation. A similar lawsuit is underway in Uruguay, of all places. Uruguay is a small country that has just a few thousand cigarette smokers, but it has tightened its cigarette labeling laws and the tobacco lawyers may see it as a relatively easy mark.

The tobacco industry will lose all these suits, but it stands to lose more than that. By presenting itself so visibly in such a predatory fashion, Big Tobacco undercuts its own public and political support. A legislator cannot easily vote to protect the interests of a predatory foreign industry. The latest legislative battle for tobacco would ban cigarette smoking in cars where there are children. The world is just now coming around to recognize that children in cars with cigarette smoke sometimes suffer heart attacks and other diseases as a consequence, and if the issue is seen in those terms, moves to protect children from those dangers may be put in place rather quickly.

I have my doubts about the Halloween horror-show themes of cigarette labeling in Canada and coming soon to the United States and Australia. I would rather see cigarette packages that look weak and pathetic, modeled perhaps after the bureaucratic style of a high school hall pass. Horror reinforces addictive behavior, so that theme won’t help people break their addictions. But it will undercut the public standing of cigarettes and will probably dissuade new users, along with some retailers. The new packages are too ugly to be seen in polite company, or in the presence of children. Getting cigarettes out of sight is, at least, a step in the right direction.

Tuesday, June 28, 2011

Auditors in China yesterday reported that local governments there owe $1.6 trillion. We don’t really know what the focal point of all that debt is, but a large part of it must be speculation in real estate development. That’s the same problem that is causing so many bank failures and bailouts in the United States and Europe. Bailouts may be called for too in China, to prevent the banks from failing, and it could end up with many of the same economic consequences we are seeing in countries like the United States and Ireland.

Alas, this is a problem that has been creeping up on us for ages. “Never judge a book by its cover” is a folk saying addressing this topic that goes back long before I was born. The phenomenon of books as deceptive advertising hit its stride in the 1960s. I remember reading a thick paperback book published, I think, in 1963, when it sold for the then hefty price of 75¢. It was supposedly a book about healthy living, and it sported some real information about food and weight-bearing exercise, but taken as a whole, it was an advertisement for the putative author’s line of “health food” chocolate bars.

In the 1960s, this kind of book was slightly disreputable, but readers and book publishers put up with it because there weren’t so many people who had the writing skill to write a book at all. Flash forward to the recession of 2001-2002, and it became mandatory for a book author to have a “platform” — an ongoing business that could profit from the publicity surrounding the book, because the author certainly wasn’t going to make any money from the book itself. Book advances from major publishers had declined by then from the $3,000 that was common in the 1960s, theoretically enough for the author to live on while writing the book, to $500, not nearly enough to cover the author’s travel expenses while promoting the book. Most books don’t sell enough to earn royalty payments, and most authors know this, so if an author is going to spend her own money to promote a book, she has to have a business plan to profit from the publicity. Publishers insist on this now because they know from experience that authors who don’t have a platform tend not to do much to promote their books, and there is little that publishers can do without the authors. But the result of all this is that most books from well-known publishers are written with the promotional opportunity in mind. They are very carefully disguised advertisements. These books put the valuable content first to reward the reader, but the upsell is never far away.

In this context, it shouldn’t be shocking if most of the 99¢ ebooks — indeed, many of the $97 ebooks too — follow this same model, but are not so carefully done. Just as email spammers think nothing of sending 100 email messages to 10 million recipients each just to see which marketing message works, ebook spammers will create a disposable author identity and create 10 to 20 ebooks credited to that pen name in an afternoon just to see if any sales result. Amazon has been hit hardest with spam books, according to the Reuters story,

clogging the online bookstore of the top-selling eReader with material that is far from being book worthy and threatening to undermine Amazon.com Inc’s publishing foray.

But the whole book business is suffering from the same effect. Book prices haven’t gone up in the last 11 years (with some exceptions, such as textbooks) mainly because readers are resisting higher prices. And why is that? Readers don’t like the feeling of paying $29.95 for a book only to discover that it contains only a single chapter of valuable information, a pattern that unfortunately describes most of the “platform” books published in recent years. This inability to raise prices is arguably the main reason why Borders and about half of independent bookstores have failed in the last decade.

Low-quality books are not just spam. Some are outright fakes. The Ars Technica story describes ebooks of content stolen from legitimate sources, purchased from content mills for as little as $7, even copied and pasted hundreds of times to pad the page count. Some books are falsely attributed to famous authors to try to draw more attention. Of course, these too are sloppier versions of tricks that major publishers have employed for decades. How many people have picked up a book with a famous name at the top of the front cover, failing to notice the words “with a foreword by” preceding the name? Or a 300-page book that turned out to consist mostly of appendixes?

Printed books will not hold up much better than ebooks, simply because any ebook can be printed and bound with minimal effort. If the idea of books as spam is so disconcerting, it is because we are used to the book industry providing a base level of quality for books. That is breaking down in multiple ways and we have to do our own checking. In the long run, we will need a social network to vouch for the legitimacy of any purchased content, including books.

Sunday, June 26, 2011

Time pressure is probably contributing significantly to obesity. Long-term trends show time pressure and obesity both climbing year after year, and though that doesn’t prove anything, it does suggest that time pressure and obesity could go together.

Anecdotally, obesity and time pressure are connected. “Just grab anything” and “There’s no time to exercise” are more common than “Did you notice we forgot to eat supper?” Weight loss coaches stress the importance of following a system and making the right decisions about food — just the kind of thinking that disappears under time pressure. The key to success in an exercise program is not what exercises you do, but just putting in the time. Part of the success of the food journal process is having people discover how much they eat while they’re busy and not fully paying attention. All these factors and others suggest that there are people who don’t always have time to maintain a healthy weight. A serious scientific look at weight gain, The Seven Deadly Sins of Obesity: How the Modern World Is Making Us Fat (2007), lists time pressure as one of seven social and economic factors that create the obesity trend.

If that’s the case, though, the continuing time pressure trend may make it hard to turn around the obesity trend. Is there a way around this connection, so that we can lose weight even when we’re frightfully busy — or will we have to get a handle on time pressure before we can turn the tide on obesity?

Saturday, June 25, 2011

In the news: a university study had some success reversing diabetes with a starvation diet. Patients ate low-density food that provided about 1/4 of the food energy of a normal diet for several weeks. This took away the fatty buildup that had kept some internal organs from working efficiently. As a result, in most of the patients the hormonal markers of diabetes diminished or went away, and didn’t return when the patients went back to a normal diet.

If this result suggests that diabetes is not as incurable as conventionally described, this will not come as a surprise to clinicians who have been finding similar success with a less radical dietary approach based on raw food.

Both of these approaches work by tossing out one of the conventional rules for managing diabetes, which says that you should eat essentially the same way day after day. The systematic, consistent approach to food may help prevent the hormonal fluctuations that seem to do the worst damage in diabetes, but it may also prevent the patient from ever recovering from the disease.

If the dietary intervention poses some hormonal risks for people with diabetes, these risks would be considerably less for people who are merely pre-diabetic. Food most likely could prevent diabetes in the same way, and the risks in this approach would be far less than the risks that diabetes presents.

Friday, June 24, 2011

The NCUA this week started court proceedings against JPMorgan and RBS. The lawsuits claim the two investment banks sold mortgage-backed securities to credit unions by using misleading descriptions of the securities. Five wholesale credit unions failed because of their investments in derivatives based on mortgages. The NCUA is seeking close to $1 billion in damages.

JPMorgan says it is a defendant in 10,000 court cases, but probably the largest claim is the $19 billion sought by the bankruptcy trustee representing the victims of the Madoff investment fraud. In an amended complaint filed this week, the trustee alleges that JPMorgan profited from Madoff’s scheme and took steps to cover up irregular financial transactions.

New rules next month require debit card transaction fees to be reasonably related to banks’ costs. The fees will fall by about three fourths, which means retailers will be paying banks a lot less, at least $100 million less per day. As banks adjust to the loss of revenue, they will be discontinuing debit-card loyalty programs and experimenting with account maintenance fees and other fees related to debit cards and checking accounts. Some banks have already imposed transaction limits on debit cards as low as $300 per day, making them too limiting for consumers to use on payday shopping trips. Expect many consumers to switch from debit cards to cash during the next year to avoid fees.

Tonight, Georgia state bank regulators closed a small bank, Mountain Heritage Bank, with $90 million in deposits and two offices in Clayton and Dillard, villages in far northern Georgia along the North Carolina border. The successor is First American Bank and Trust Company. The failed bank had been in business for 8 years and was under a cease and desist order for nearly a third of that time.

Thursday, June 23, 2011

Among the many important distinctions in tonight’s Rebuild the Dream webcast, there was one that I would like to believe is ready to take root. That is the distinction between the American dream and commercial culture. Of course, every big corporation that has a consumer product to sell in the United States would like to persuade American consumers that its product is somehow tied to the idea of the American dream. This is a marketing angle that especially works for products that are expensive to the point of being extravagant. They’ll try to persuade you that you dream of having their products just because you’re an American. But in reality, that is just commercial culture. In reality, the American dream has hardly anything to do with surrendering your money for a standardized list of mass-manufactured products.

The commercialized version of the American dream is a dream I am hoping we are finally waking up from. Enough of us have gotten close enough to those mental lists of products of comfort and convenience, contrived distinction and commercial prestige to realize that the dream of “stuff” is not all it’s cracked up to be. You need only look at the trend of the last two years of people giving their excess possessions away, or the trend toward smaller houses and older cars, to realize that people’s “success” with stuff was not what they had imagined it would be. The financial crash helped a lot of people realize that pure abstractions like strength and stability can be just as important, indeed just as prestigious, as the stuff people had been competing to get. Sometimes you might actually choose peace of mind over more stuff. As Deepak Chopra wrote last week, “To feel financially secure begin by not spending money you haven’t earned, to buy things you don’t need, to impress people you don’t like.” That rhetorical caricature of the consumption mentality is uncomfortably close to what the commercial version of the American dream had become for many people.

It’s really ultimately about self-determination. You’re not really free if you buy into someone else’s idea of what you should be trying to accomplish. The real American dream is not about the freedom to spend yourself into financial oblivion trying to keep up with all the ideas that all the large business corporations have for your life. The real American dream is about real freedom.

Wednesday, June 22, 2011

The reduction of U.S. troop levels in Afghanistan will strengthen the U.S. economy, if only in a small way. Having workers of any kind located outside of the country affects the economy like an import of the same size. Either way, the money being spent is, for the most part, leaving the national economy.

The planned troop withdrawals over the next five quarters involve just .01 percent of the national population. That’s enough to care about but perhaps not enough to measure in economic aggregates. Obviously, not all of the U.S. military spending in Afghanistan goes for troops and troop support, and when the other spending is eventually cut back, that will make a slightly larger difference.

I realize that .01 percent might seem vanishingly small, but that’s not really the case either. We fret about each 1 percent change in national economic measures, and especially about the difference between the 1 percent growth rate that means growing unemployment and the 2 percent growth rate that means declining unemployment. If a single policy move can make up 1/100 of that difference, it is nothing to sneeze at.

Tuesday, June 21, 2011

Much has been said about possible links between restaurants and obesity, and nearly all of this has focused on the food: large portion sizes, undisclosed bottom-shelf ingredients, and recipes selected for unskilled cooks. Quite apart from the food, though, the restaurant experience may contribute to obesity.

Inactivity

Physical inactivity is about as important as food in creating obesity. Health coaches have been telling us this all along, and epidemiological studies seem to confirm it. If you somehow failed to notice the food when you looked at a typical restaurant, you could not help but notice the inactivity: customers sitting at tables for an hour or two at a stretch, most not budging from their chairs from the time they arrive until they time they leave.

Inactivity is not really an issue if you walk five blocks to a restaurant, but the standard American restaurant experience involves something more like a ten-minute drive, adding an extra 20 minutes of sitting to the restaurant experience. Only the 200 steps from the parking lot to the table, and the return trip, require any movement. The two-hour early-evening visit to a restaurant, then, gets you less physical activity than if you had worked late at the office, gone out to a bar, or gone to the movies.

How much does two hours of inactivity matter? Two hours is one eighth of a waking day, so for every eight restaurant suppers, you can strike off the equivalent of one day of physical activity. If you eat supper at restaurants once a week, the inactivity effect alone is theoretically enough to increase your body weight by 1 to 2 percent per year, or more than 10 percent in a decade. Yes, that’s without even counting the effect of the food you eat.

Late Meals

For some reason, restaurants are associated with late meals, especially in the evening. Partly this is because a trip to a restaurant might be a fallback strategy after preparing a meal at home fails. Partly it is because of the inevitable delays in the way a restaurant works. Combine these and other effects, and if supper at home doesn’t happen the way you planned it at 6:00, and still isn’t happening at 6:30, you might find yourself waiting at a restaurant table for your meal to arrive at 8:15.

Eating late in the evening, though, messes with your metabolism. Eating any food at all, but especially a meal, after 8:00 p.m. results in a larger proportion of the food being stored as fat. Some experts say 7:00 p.m. is the cutoff. Late-evening food sets up a clash between digestion and sleep that can cause a range of minor health issues, most notably insomnia, which in turn is known to cause weight gain. Experts disagree about the magnitude of the late-evening-food effect, but it is big enough that many people have been able to lose weight just by not eating after 8:00 p.m.

A rule of thumb I use for weight loss is that supper should be just large enough for you to get to sleep later, but that is not the kind of eating that the restaurant experience encourages. If it is late in the evening when you finally get to eat and the delay has made you very hungry, it is easy to eat the entire plate of food that the restaurant has to offer.

Real Estate Accounting

Restaurant business plans are based, for the most part, on real estate calculations. Most restaurants are located on prime commercial real estate, and they maximize that space by fitting the largest number of customers into the dining room. Customers who are moving around take up more space, so the layout of a dining room discourages that. Each table can be occupied three times during dinner hour, providing the revenue of three tables, if the restaurant can stretch out dinner over a 5-hour period from 4:30 to 9:30, so restaurants do their best to make that happen. These imperatives of the restaurant business tend to work against the health of their customers, but they can’t be easily corrected.

In one area, though, restaurants can help, and that is by reducing the length of the kitchen lag in a restaurant visit. If you wait a shorter time for your food to be cooked, the total length of your restaurant visit is shorter. This is not as easy to accomplish as it seems, but one trend in restaurants in the last 8 years has been to deemphasize dessert. Dessert menus have become smaller and simpler so that you might skip dessert entirely, or if you do order a dessert, they’ll get it to your table quickly. The food energy content of a restaurant dessert can be substantial, of course, but the extra 20 minutes of inactivity counts for something too.

Monday, June 20, 2011

The Missouri River is already high enough to flow over the top of some levees, and today’s thunderstorms in South Dakota could add enough water to shut down Cooper Nuclear Station in Nebraska. The nuclear power station has already declared an “unusual event” because of the flooding, and its operating plan calls for the plant to go offline if the river rises 1 meter higher. The flooding so far is just an inconvenience at the power station, which has been surrounded by water on all sides since Saturday night. Flooding is also affecting the Fort Calhoun nuclear power plant in Nebraska, which is offline for scheduled refueling. There the water is being kept out of the plant by a series of temporary barriers.

Most nuclear power plants are built on major rivers, which they use as a source of cooling water. Design engineers generally place the buildings inches above the highest expected water levels.

Sunday, June 19, 2011

With a series of droughts and floods in recent years, the large-scale Three Gorges Dam in China has filled up and drained out faster than it was designed to do. In the process, it may have helped to prevent floods downstream, though not all observers agree on this. At the same time, the rapid changes in water level have showed that the biggest concern about the dam, that it could trigger earthquakes, was not such an exaggeration as the central government had suggested beforehand.

It is not that the weight of the water in the reservoir has triggered a damaging earthquake — possibly it has, but it’s hard to say so with any confidence. However, Chinese government scientists studying the dam issued a report last month counting some 3,000 small earthquakes that most likely are reservoir-related. An environmental group that translated the study said this in a press release:

"This represents a 30-fold increase in frequency over the pre-dam period," according to Patricia Adams, executive director of Toronto-based Probe International and English editor of the translated study. "The earthquake activity especially increases when the dam operators rapidly increase or decrease the level of water in the reservoir."

Most of the microquakes mentioned in the study have been less than 2.9 on the Richter scale, but the largest was 4.1, large enough to notice. Where small earthquakes occur, large ones are also likely, if not as frequent, and scientists believe the dam-related quakes have probably contributed to the frequent mudslides that have killed thousands of people in the surrounding area in recent years. The reservoir water itself, though, caused more of the landslides.

The worst-case scenario is if the reservoir triggers an earthquake that damages the dam. The dam is engineered to withstand a magnitude 7.0 earthquake, in an area that has regularly produced earthquakes with a magnitude up to 6.0. Those quakes occurred without the added pressure of a reservoir, so there is not much margin for error. But the dam operator and the central government are financially committed to the Three Gorges Dam now, so until there is a much more obvious sign of trouble than what we have seen so far, they will have to keep the dam operating.

Saturday, June 18, 2011

Sometimes financial pressure, of the sort that most of the world has been experiencing during the last five years, can squeeze out corruption. Corrupt politicians get voted out; corrupt businesses fail; a few unlucky business criminals may even get prosecuted. But the same pressure can increase the reach of corruption. It depends on how decision-makers react. Governments can bail out corrupt institutions while forcing their competitors out of business; voters who lose patience can vote honest politicians out of office to give their corrupt replacements a chance; faltering businesses can shut down or sell off their legitimate business units to dedicate their resources to their more sleazy activities; politicians and regulators may feel they have to put up with abusive business practices for fear of forcing corrupt businesses to scale back and lay off workers; anyone under pressure might look for new ways to cut corners.

On the whole, it is hard to make the case that the current difficult economic times have resulted in a reduction in corruption. For every Egypt, where corrupt officials have been forced out, investigated, and arrested, there are at least five Wisconsins, where the government seizes on the crisis as a new excuse to divert public funds to private businesses. In Ireland, the corrupt political party that put the country in a financial crisis by bailing out all the banks all but disappeared in the last election; but in the United States, both major political parties were in on the Wall Street bailout that created the country’s economic crisis, and voters don’t believe they have anywhere else to turn.

There is a serious problem with corruption when you look at the economy as a whole. When the system is rigged, the incentives to work fade away. Doing well in a contracted and dysfunctional economy and labor market is a matter of clinging to a position, any position, rather than working hard, finding a job that matches your skills, or even possessing skills. The people who fare the worst are the people on the outside, those who have no positions to defend. Most of them are workers under 28 years old who don’t have a realistic chance of developing a history of work within the system.

All economic value results from work, so when “work” comes to mean “protecting a position” rather than “creating something useful,” the total value of what people produce does not increase so easily.

If workers cannot work within the system, in the well-recognized channels of employment, they will work outside it. If corruption has made the system so inefficient that the relatively inexperienced workers outside can compete with it, the whole system could then collapse from the new competition. The centrally managed economies of North America and Europe have not become so inefficient that this is a realistic prospect at this point, but they are not comfortably distant from this scenario either. In less flexibly managed countries like Iran, Syria, Libya, and Indonesia, the official economy is already obviously broken, and it is just a matter of time before it falls and the shadow economy takes charge.

There is a lesson in the high degree of organization and discipline in the Spain protests. The dispossessed young workers who organized the protests are skilled enough to run the country if they were to get the chance. If corruption continues to undermine Spain’s official economy and its two-party political system, they may get that chance — and the same thing could happen in more than a few other countries.

Friday, June 17, 2011

One of the larger U.S. mortgage lenders that steered clear of the mortgage mess was ING Direct. It stayed out of trouble because it kept its loans simple and didn’t participate in the secondary mortgage market, keeping its loans on its own books. Despite this favorable business model, it was affected by the financial meltdown anyway. Its parent company, ING, received a Dutch government bailout in 2009 that required it to sell off many of its assets, and yesterday, ING announced that it was selling ING Direct USA to Capital One. The deal gives ING about $4 billion in immediate added liquidity, with the potential for more later if the 9.9 percent stake in Capital One that is included in the deal is still valuable when it is able to sell it. ING Direct operations in 9 other countries are not part of the transaction. Capital One will be keeping ING Direct USA’s orange ball trademark but will have to rename the bank by next year. Capital One, if it manages the transition well, will get a stable deposit base to support its U.S. credit card business. In its press statements, Capital One makes it clear it believes it got ING Direct at a discount price. In a presentation to investors, Capital One hinted it would scale back and wind down ING Direct’s mortgage business, which from its point of view is an accidental part of the deal.

A lower-level executive at the failed Colonial Bank was sentenced to 8 years in jail for her role in concealing fraudulent transactions between the bank and mortgage lender Taylor Bean and Whitaker. The bank and mortgage lender both collapsed amid this accounting fraud, from financial shortfalls that dated back to 2002. The top executive at Taylor Bean and Whitaker was convicted separately and will be sentenced next month. Three other executives and an analyst at Taylor Bean and Whitaker pleaded guilty to charges. The investigation began as a TARP inquiry before being turned over to the FBI. Colonial Bank’s holding company had submitted a fraudulent TARP application to begin with, and then Taylor Bean and Whitaker provided the bank with essentially stolen funds to make it appear that the bank qualified for the TARP funding.

U.S. bank failures resumed tonight after a week off.

Georgia banking regulators closed McIntosh State Bank, with four branches in small towns between Atlanta and Macon. It had $324 million in deposits. It had been open since 1964 and had been operating under a cease and desist order from regulators since 2009. Hamilton State Bank is taking over the deposits and purchasing the assets.

Florida state banking regulators closed First Commercial Bank of Tampa Bay, with two branches and $93 million in deposits. Stonegate Bank is taking over the deposits and purchasing the assets.

“Bystanders rushed to assist a woman after she was knocked on her head and trampled by riot police. As it turned out, the woman was not injured seriously.”

It is just by chance that that was not the caption people saw with the now-famous “kiss” photo from Vancouver. (I don’t have a license to reproduce the photo here, but you can see it everywhere today.) Police chased reporters out of the area before the photographer could take another picture or determine what had happened. Later that night, a news editor decided, probably correctly, that a romantic interpretation of the scene would attract more attention.

It took a day for the more complete story to emerge from eyewitness and second-hand accounts and photos taken from other angles. Putting them together, you can see a woman lying on the pavement in obvious pain and the spontaneous concern of people nearby.

In the interim, though, many viewers didn’t believe the photo was real. Mashable, for example, suggested that the scene was staged. The Village Voice labeled the photo an art hoax. Thousands of blog commenters insisted it must be a composite, two or more photos combined, even though there is nothing technical in the photo to suggest that.

If the photo is so striking and hard to believe at first, it is because of the juxtaposition of love and violence. This contrast is no less stark for knowing the whole story. Love is a man holding his injured girlfriend and preparing, perhaps, to shield her from one last kick, all the while catching his own breath. Love is also bystanders running over to see what assistance might be needed. These might not be the most profound forms of love, but even so, you can’t help marveling that such actions can take place at all in a scene dominated by riot police rampaging through an intersection knocking over as many people as they can reach while a terrorized crowd runs away as best they can.

It is especially unexpected to see this in a photo in the news, which usually seeks to depict violence and the accompanying fear as absolutes rather than interruptions. Life, of course, is never as absolute as a news story. Every day in reality, love survives violence. This is something we all want to believe. If we are skeptical, it is because we have been tricked so many times. We are afraid we are being tricked again this time. All this deception is itself a form of violence, and our fear, a natural reaction to it. But this time, the conclusion survives the initial deception. Violence passes by and is gone. Love survives.

Thursday, June 16, 2011

European leaders insisted on the bailout as a way to shore up Greece’s finances, calm markets, and strengthen the euro.

It has had something of the opposite effect. And now that Greece really does need a bailout, the same European leaders are balking.

Today the prime minister is picking a new cabinet, one more narrowly focused on the austerity budget that must somehow save the country from further financial decline. He plans to ask parliament for a vote of confidence. It is perhaps all he can do to shake things up, which is what you need to do when people are complacent and no one has an answer to the problems.

Out in the street things turned ugly yesterday. It was perhaps the largest protest in a year of protests and by the end of the evening, police were attacking protesters with a ferocity not seen before. Protesters are mostly repeating the same sentiments as before, yet it is also true that the solutions and suggestions they represent cannot be ignored forever.

In cities elsewhere in Europe, financial and political officials are trying to slog through the inherent difficulties of the situation and work out a new plan for Greece. Complacency is a problem there too. Traders, bankers, and ideologues are seeking to attach their various pet conditions to a Greece plan that has no guarantee of success even without any such extra burdens. Financial traders have been watching this process and fidgeting for weeks, and yesterday started to reach the conclusion that it is probably already too late for a deal to prevent a Greek default.

This story of complacency, dithering, and half-hearted compromises that arrive too late to matter has been repeated throughout history. Shaking things up is a way to try to break that pattern. It is fair to ask how a political shakeup in Greece will really make any difference, yet no one can say that it won’t help. It is, at least, the biggest move that anyone has made in the last three weeks.

Wednesday, June 15, 2011

The nuclear power industry has to be reeling from the scale of the anti-nuclear vote in Italy yesterday.

To appreciate this, you have to look at both the turnout and the margin of victory. The turnout, estimated at 57 percent, was the highest in 16 years for any ballot question, and within the range of a presidential election in the United States. And this was with a get-out-the-vote effort that was largely organized on Twitter after the state-owned media imposed a blackout on the special election to try to confuse voters and discourage participation. This aspect of it in particular has some in Italy calling the referendum a revolution. And when the votes were counted, the margin of victory was so large one has to wonder, with the benefit of hindsight, why the question had to put to the ballot at all. More than 95 percent of voters voted yes, to shut down nuclear power. About 4 percent voted to retain the nuclear program. There were so few no votes that all of them could have come from power company employees, factory owners, and the personal friends of the staunchly pro-nuclear president. If you discount the voters who had a personal financial interest at stake, the vote was essentially unanimous.

This was a vote in one country, but voter sentiment there is not so different from voter sentiment anywhere else. There is no reason to imagine that voters anywhere would vote to blanket their country with nuclear power stations, if they had the opportunity to vote on it. This must be one of the reasons why politicians so rarely trust the people with any nuclear questions.

What yesterday’s vote in Italy says is that consumers don’t benefit from nuclear power. From the consumer point of view, the whole industry is a sham, putting public money and people’s health at risk for the purpose of providing subsidized electricity to large industrial users, a giveaway to the wealthy that the ordinary people end up paying for.

This is an easy picture to draw in Italy, where an arrogant billionaire president is asking for public money to build a nuclear empire, as his top “policy” priority. But wherever you go, nuclear power cannot be justified in purely financial terms. Governments support nuclear power only where it fits with their visions of concentration of political power, and the power companies take financial risks with it knowing that the taxpayers and ratepayers are there to bail them out.

After yesterday’s vote, it is fair to consider nuclear power as an empire, imposed on nations against the people’s will as a sort of hidden tax. Its unstated purpose, as with any empire, is the concentration of wealth and political power. The fact that a useful product, electricity, is generated along the way need not confuse anyone, especially now that anyone with a $2,000 box on the roof can generate electricity. More to the point, if you have $20 billion to spend on generating electricity, you have many choices open to you, few of which are as balky and inefficient as a nuclear reactor.

Tuesday, June 14, 2011

Someone broke into the computer network at the International Monetary Fund (IMF) and some security experts are saying the culprit must be a national government. The BBC News story “Government ‘may have hacked IMF’” quotes “Graham Titherington, a security analyst with research firm Ovum”:

“Any attack that shows money, time and resources went on it points to a state attack. States and their intelligence agencies have far more resources than criminal gangs.”

Ordinarily I would agree with this assessment, but this year, with a financial target and no indication that the method of attack required a large geographical footprint, the means and motivation lie with the better-funded speculators who hope to orchestrate or just trade around the financial collapse of nations. To simplify somewhat, the IMF computer break-in was likely the work of a hedge fund.

Bond and currency speculators who are well-funded and can anticipate the dramatic moves and announcements that are expected to follow this year and next could stand to make a trillion dollars or more in a few days — or, if caught flat-footed when nations go down, could lose a trillion. In strictly financial terms, no national government has quite so much at stake.

Similar questions have to be considered at Citibank, where a similar break-in took place. While Citi’s public statements have only addressed the customer data that was compromised, ostensibly by a crime group, the more worrisome issue has to be whether one of Citi’s crosstown rivals was able to access some of the more sensitive information Citi might hold about the financial status of its largest customers, including governments.

The scale of spying is always greater than the discussion of it. For every attack we hear about, there may be 200 that are hushed up or go undetected. And so, even if IMF and Citi were able to thwart the attacks on their networks, the sponsors of those attacks may get the information they are seeking from other, less vigilant sources.

Monday, June 13, 2011

Normally, the bonds issued by the U.S. Treasury are considered the most liquid of investments. They earn interest but can be sold for their full market value in a matter of minutes if you find out you need the cash. In this role, they serve an important function in the financial world. All that is changing, though, now that the U.S. government is effectively bankrupt, having borrowed as much as the law allows. With the timing of August interest payments looking increasingly uncertain, treasuries can’t be used as the equivalent of cash for much longer.

A number of Wall Street’s biggest banks are preparing to lower their use of U.S. Treasuries in August, the Financial Times reported on Sunday.

This is an issue that applies not just on Wall Street, but in every bank in the country. Banks will hold fewer treasuries and may have to hold more cash and make fewer new loans as they adjust their approach in order to make sure they have cash on hand when they need it.

The concern about the liquidity of treasuries is not limited to banks, either. Money market funds that might ordinarily hold more than half of their portfolios in treasuries will have to cut back more than banks will, spreading their holdings out among commercial paper, state and local government bonds, and possibly even a smattering of foreign assets. They do this to ensure that their portfolio is liquid enough to meet any flurry of redemption requests that might come in during August, or for as long as the U.S. government bankruptcy lasts. Foreign banks and investment funds too will have to cut back on treasuries, for similar reasons if not to the same degree.

There is no suggestion at this point that any bank or fund will be selling off all their treasuries at a loss. They may merely have to stop buying them. But with so many large institutions and funds having to cut back, the value of treasuries may decline ever so slightly, which also means the interest rate on them will be higher. If Congress does not act to take the U.S. government out of bankruptcy, this move will be only the beginning of a progression of higher interest rates, accompanied by the step-by-step downgrades from ratings bureaus. No ratings bureau has announced a downgrade yet, but among banks and mutual funds, treasuries are already not what they used to be.

Sunday, June 12, 2011

Deepak Chopra yesterday issued a call for a more conscious approach to evolution, drawing on the Bruce Lipton book The Biology of Belief, which documents links between subjective experience and genetic expression. Random evolution, after the Darwinian style, is part of what we are, but it won’t solve the problems the world faces today, Chopra says. We will need to evolve more intentionally.

This seems like a lot to ask. Many of us are still trying to sit up straight, and now you want us to evolve too? When we struggle year after year just to get voters to vote in elections, how can we expect them to vote in the much more complex realm of personal and collective evolution?

But perhaps the issues of evolution are not so murky as those of politics. They are fundamentally questions of priority. Almost anyone can offer an answer to questions posed in the form, “Which do you want first?” These distinctions come naturally to us all day long. For example, in the previous paragraph I mentioned sitting up straight and voting in elections. Some readers automatically drew a comparison between the two, deciding that one or the other of those initiatives makes a bigger difference or is more easily done. Every day, people are choosing between tea and pumpkin pie on a menu; between physics and French in a curriculum; between “Did you see the New York Times?” and “Limited Time Offer - Free Shipping” in an email in-box.

Evolution will become more conscious if we can make it more automatic, so that more people participate more often. How to make that happen is another question, and a big one. But perhaps it is no bigger a challenge than the question, half a century ago, of how to control the television from the sofa. Can someone create a remote control for conscious evolution? Considering how rapidly our way of relating to the world is changing already, I won’t be surprised if someone writes to tell me that such a thing already exists.

Saturday, June 11, 2011

It appeared in the news this week almost as a footnote: global oil production has fallen below oil consumption. This was the assessment of new monthly reports from BP and OPEC, and the reports confirm data coming from other sources.

BP notes that fuel consumption in 2010 was higher than oil production. A significant part of the difference comes from the use of plant-based fuel, but plants provide only 2 percent of global fuels. The rest of the shortfall, then, must show up as a decline in inventories. Separate reports show that global fuel inventories have fallen by more than half since 2009.

In its report, OPEC looks at the prospects for 2011. It predicts that the demand for oil is likely to exceed the production capacity for the year as a whole, perhaps by only a little bit, but more likely by 1 or 2 percent. If 1 or 2 percent does not sound like a lot, look at it this way: the world might have only enough oil to get through December 26, with none left for the last five days of the year.

The headline from the BP report was that known oil reserves increased during 2010. The estimated increase, though, was vanishingly small, only enough oil for 2 hours, and one has to wonder if some of the estimates were bumped up in order to report that increase. Oil consumption, meanwhile, increased by 3 percent in 2010 compared to 2009. The OPEC report says that oil consumption could increase another 2 percent in 2011.

Oil inventories, then, will decline, and oil prices will go up. Oil is not easy to replace in the short run, so prices can go up a lot for a small shortfall.

Friday, June 10, 2011

It’s no secret that the HAMP program, which was supposed to help banks make mortgage modifications that would allow homeowners to keep their homes, is a failure. Far from using the HAMP program to modify mortgages, some of the largest mortgage servicers have been using the mortgage modification applications as a marker to fast-track applicants to foreclosure. It’s gotten so bad that Treasury said yesterday it has stopped making payments to the three most frequent offenders, Bank of America, JPMorgan Chase, and Wells Fargo.

Prohibited from borrowing money during the federal government’s slow slide into bankruptcy, Treasury can scarcely afford to keep making payments that the recipients are treating as just another bank bailout anyway. Whole departments could be shut down beginning in September, and long before then, bank bailouts in any form will be out of the question.

Thursday, June 9, 2011

The U.S. corn crop estimates are sharply lower compared to last month, and traders are watching to see if corn prices hit new all-time highs in response to that report. With flooding, drought, and other bad weather, many fields were not planted, and some of the fields that were planted have fared poorly. Corn inventories, already low, will go lower next winter. Wheat might be used as a substitute for corn, but wheat crops have also been reduced by unfavorable weather in the United States and Canada.

Along the way, with a shortage of corn, corn prices are sure to go higher than the pre-recession peak. Then, high corn prices led to historic high prices for meat and dairy products, and that pattern will likely repeat, but I expect meat and dairy prices to rise faster and farther this time, as cattle ranchers and dairy farmers can see the higher costs coming and will be eager to avoid absorbing the losses they recorded in 2008 and 2009. They’ll reduce their costs by producing less. I believe we won’t see the same glut of milk and beef that muted the spike in prices three years ago.

U.S. consumers are still under financial pressure and will be forced to cut back again on their meat and milk purchases. Ice cream, again, may be hit hardest, as consumers are already resisting ice cream prices close to $10 per gallon. The ice cream section in supermarket freezers will have to shrink further, especially after summer is over, as consumers buy ice cream in smaller containers and less often.

Ice cream might seem expensive at $11 per gallon, but most meat prices are much higher than that, and were already forecast to go up about 10 percent compared to last year, before the new corn report. If you want to save money, it will be a good year to cut back on meat.

Corn is also a significant component of the U.S. gasoline supply, and the higher corn prices will raise fuel prices by at least 1¢ per gallon.

Wednesday, June 8, 2011

Among the dozens of new features Apple was showing this week in its preview of iOS 5, there was one of particular economic significance. This was the ability to associate reminders with places.

We’ve long been able to get alerts and notifications at specific times. This is the idea, after all, behind the 20th-century alarm clock. It has not been so automatic to get notifications based on location — but that is the nature of many of the reminders we need. Most of the things we want to remember to do are things we can do only in particular places. You can make a separate list of tasks for each place you go to, but then you still have to remember that the list exists. How many times have you told yourself, “The next time I go to _____, I need to remember to _____” — and then forgotten a few times?

Making the connection automatic with place-specific reminders will be just as valuable as the time-specific reminders many of us already rely on. As
Apple suggests:

Since Reminders can be location based, you’ll get an alert as soon as you pull into the supermarket parking lot.

The iPhone and other position-aware iOS devices will be able to provide reminders at specific places by linking the reminder feature to the location tracking that the device does already. No doubt this ability will become an essential feature in other portable devices as soon as people come to depend on it on the iPhone.

With fuel becoming more expensive, it is becoming more important to conduct errands efficiently. One way to do this is to plan errands in detail. You can write out an itinerary for errands, and connect this to a list of things to do at each place along the way. Location-based reminders have the potential to provide most of the same efficiencies even when things are not going according to plan. Perhaps you are going by a store because you left a party early or because your regular route home is blocked by traffic troubles. It’s nice to have your phone remind you that you have things to do in this place that you hadn’t expected to be.

It is hard to say whether location-based reminders will increase or decrease consumer spending at first. Reminders will help ensure that shoppers buy the things they especially want. That will tend to increase spending. But reminders will also reduce the number of shopping trips. That is efficient, but it results in less spending on fuel, and fewer impulse purchases. In the long run, though, location-based reminders will result in more successful consumers, and a more successful economy.

Tuesday, June 7, 2011

As the situation at the Fukushima Daiichi nuclear power plant becomes clearer, there are profound implications for the operation of nuclear power plants worldwide. It is not just the threat of flooding, though that is an issue that the industry has underestimated.

In addition, a significant fraction of nuclear power stations may be looking with some concern at the Fukushima experience with containment, power failures, and evacuation. Containment may have failed at Fukushima from problems with both fractures and vents. All reactors have backup power supplies and batteries, but the batteries typically last only four hours and there is typically no Plan D to go to when the batteries run out — not such an unlikely scenario in the event of a natural disaster, war, or other extreme circumstance. Evacuation plans are typically limited to the emergency evacuation of the nearest two towns, but plans might also be needed for long-term evacuation of a much larger area.

Monday, June 6, 2011

There is nothing in the technological profile of the latest Chinese attack on Google Mail to indicate the involvement of the Chinese central government. In the flurry of official denials since, though, the Chinese state-controlled media have virtually acknowledged that the central government was a party to the phishing scheme that specifically targeted U.S. government decision-makers. So what was China looking for?

Government officials aren’t legally permitted to carry on government operations using a private email service. It must happen sometimes, but not often; in my many dealings with politicos, bureaucrats, and government data centers, I have never seen it, only heard distant rumors. If you could read everyone’s Gmail accounts you would hardly get a decent picture of what the government is doing and planning.

China, then, isn’t fishing for operational details of government actions. Instead, I believe it must be looking at the people. Who in Congress is frustrated at the end of the day? Are Fed examiners preparing for an imminent banking crisis? Are Treasury officials making contingency plans in case they do not get paid when August rolls around? This is the kind of situational information that would routinely leak out in the wording of casual messages to (and from) family members and friends. It is enough information to give a foreign government, or a hedge fund for that matter, a fair amount of advance warning about the timing of government actions that could lead to a collapse in the U.S. economy.

If anyone would know how to do this, it would be China, which keeps tabs on its own government officials in the same way. If the Chinese central government is involved, though, it is surely not acting alone. More likely the operation is being financed by someone who has more money than China has. But these details scarcely matter. The important question is whether there is any meaning in the timing of the attack. Is there a particular reason why someone with billions of dollars to spend on spying would be particularly concerned about economic policy decisions in the U.S. government right now?

Obviously, there is. Bondholders and speculators stand to gain or lose enormous sums of money, potentially trillions of dollars, from the U.S. government’s looming liquidity crisis. This is a trading model that I believe has already been tested with coordinated behind-the-scenes financial moves on Greece, Ireland, and Portugal. Someone with tens of billions of dollars who hoped to become the world’s first trillionaire would only have to have to create or anticipate the biggest financial crisis ever, then time their trades reasonably well. And if it took tens of millions of dollars to buy off Congress to precipitate the crisis, you would need to know which twenty or thirty representatives to approach.

Of course, the fact that a speculator is looking for something to happen doesn’t mean that it will happen. Speculators bet wrong almost as often as they bet right. Still, with a financial crisis looming, someone out there is spending sums of money most of us can’t even imagine to try to get one step ahead of events in Washington. Even without knowing who that is or what specifically they are thinking, this scenario is, in my opinion, reason enough for caution.

Sunday, June 5, 2011

Retailers had been telling us for months that high fuel prices were keeping consumers at home. This was even more clear in the reports for May, when $4-per-gallon gasoline prices seemed to take about 1 percent away from retail revenue. Consumers are shopping less, to save fuel, and buying less, especially for discretionary items like clothing.

I have been seeing some of this effect in the weekend traffic around my area. Lots of people are out, it seems, on Friday night and Saturday, but fewer than usual on Saturday night and Sunday. Perhaps by the end of Saturday afternoon, the weekend’s fuel budget has already been burned away.

Saturday, June 4, 2011

Frequent travelers, particularly those who travel more often than they are home, are almost twice as likely to be obese as anyone else. This is the conclusion of the first rigorous scientific study of the question (summarized nicely at BBC News). It is easy to imagine possible mechanisms by which travel could lead to obesity: airline food, the hasty and irregular meals of travel, disrupted routines, limited availability of exercise, limited sleep, time zone changes that affect sleep, air travel radiation, airport security radiation, and a greater exposure to infectious agents. Some experts say the stress of a travel itinerary may be the main factor; others, though, believe it is the combined effect of many small stresses.

Whatever the cause, the magnitude of the effect is not small. You don’t worry about a disease being twice as likely if it is something rare, but obesity is one of the most common medical problems people face. To look at it another way, I have made a big deal year after year about the differences in obesity rates between U.S. states, but the difference in obesity rates between frequent travelers and infrequent travelers is larger than the difference between one state and another.

This suggests a need for some people to travel less, perhaps 10 days a month instead of 20, and for all of us to learn how to travel better. Not everyone who travels most of the time has trouble with it. If we can learn what practices create a successful traveling lifestyle, we will be able to travel more freely — and surely some of the lessons will also apply to those of us who stay at home.

Friday, June 3, 2011

Moody’s issued warnings on downgrades to three of the largest U.S. banks, suggesting that their profitability and liquidity depended on recurring federal bailouts, which it believes the federal government is no longer politically able to provide. Separately, Moody’s warned on a downgrade to the U.S. government if Congress does not act soon to take the government out of its current bankrupt state, with debts exceeding the statutory debt ceiling.

Some details of a new Greece bailout deal have emerged since yesterday. The new bailout sum, said to be less than $20 billion, is not really large enough to solve Greece’s problems. Instead, it is mainly intended to provide political cover for the government’s latest austerity program. Officials at the European Central Bank are particularly determined to keep Greece afloat. Large banks across Europe hold so much Greece debt that a default would likely require a new wave of bank bailouts.

In South Carolina, Atlantic Bank and Trust failed tonight. The bank had $192 million in deposits and three locations in Charleston and Myrtle Beach in South Carolina and across the river in Savannah, Georgia. It had been operating under a cease and desist order from the OTS since January 25.

Atlantic Bank and Trust launched quietly in 2007 with a plan that called for a small branch network extending along the coast from Wilmington, North Carolina, to Jacksonville, Florida. The bank emphasized home mortgage and commercial real estate loans from the start, and those categories were falling apart just as the bank was opening its doors.

The deposits were transferred to First Citizens Bank, which is also purchasing the assets.

Thursday, June 2, 2011

The World Bank yesterday issued its annual State and Trends report on carbon trading, and the trends it highlights have to be discouraging for those who thought the cap-and-trade approach would be the mechanism for a large part of the world’s reduction in greenhouse gas emissions. The total monetary size of the carbon market fell in 2010, compared to 2009, and the carbon trade has become more concentrated than ever (97 percent) in the European Union. The U.S. market declined. The international carbon trade, which mostly allows industrial countries to finance carbon-friendly projects in developing countries, collapsed. What is left of the carbon trade under the Kyoto protocol is forecast to decline by 41 percent this year.

Much of the report is devoted to the political challenges surrounding carbon emissions policy. There is confusion and disagreement about what needs to be done, and pessimism about the prospects for a coordinated global approach going forward. The World Bank sees the carbon trade as essential for establishing a market price for emissions reductions, but the world is coming to see cap-and-trade as a false start, and is experimenting with a patchwork of different approaches, some of which may prove more viable in the end.

The cap-and-trade experiment has at least showed us how complicated the issue of carbon emissions can be. The World Bank report points out that the technology doesn’t yet exist to achieve the reductions currently being sought. Part of the reason for that, though, is that many reductions don’t count under the current protocol and its carbon accounting rules — rules that are hard to explain and harder still to connect to their climate objectives. These rules will have to be made more simple and direct if the carbon trade is to mean something in the end. The stated ideal of creating a market value for carbon emissions and sequestration is not really possible as long as the market in question so depends on a central bureaucracy keeping score.

Wednesday, June 1, 2011

Weather affects economic activities every day, and sometimes the effects are large enough to push around the economy in aggregate. Weather does the most economic damage when it closes the places where people work. This is not just buildings, but also fields, roads, bridges, and especially this year in Australia, mines and railroads.

Australia’s economy would have continued its expansion in the first quarter but for the extreme weather. After the epic flooding in the northeast, though, no one was surprised to see the first quarter GDP down 1.2 percent compared to the previous quarter. It is the largest GDP decline in Australia since the 1991 recession.

Most of the effects of weather are temporary. With mines open again and some buildings being rebuilt, the second quarter GDP is likely to show an increase as large as the decrease in the first quarter.